The pair was helped by not as bad UK economic data but was unreactive for bad UoM figures.
Traders have lots of UK/US data next week to look at, along with Fed speak and Fed minutes.
GBP/USD is expected to close Friday trade with gains in excess of 0.3%. This makes it one of the most performing G10 currencies. Its performance was not as poor as the Q4 GDP or December activity data that were released earlier in European trade. As FX flows slow down before the weekend, the pair’s upside appears to have slowed at the 1.3600 level. However, GBP/USD trades almost 100 pips higher than its earlier session lows of just above 1.3500.
Next week’s data will be crucial in determining BoE tightening expectation for 2022. Currently, approximately 150bps more tightening is anticipated. Market participants will have a first glimpse at the performance of the UK labor market during Omicron’s rapid spread on Tuesday. The January CPI data and January Retail Sales figures will be released on Wednesday.
The US University of Michigan Consumer Sentiment survey data showed that sentiment was much weaker than expected. However, the US University of Michigan Consumer Sentiment survey data did not have an impact on the pair as it is not seen to deter Fed tightening. GBP/USD is on track to finish the week at 0.5% higher. This marks a second consecutive week of gains. It has risen about 1.8% since January’s lows.
It is unlikely that BoE tightening expectations will be any more hawkish if there are stronger than expected data next Wednesday. Many analysts believe that the BoE will offer far less tightening than is currently priced into the money markets in 2022, with multiple speed bumps expected to occur from Q2 forwards. These include tax increases, higher energy prices and higher borrowing costs. This could discourage the BoE in tightening in H2 given that inflation levels are expected to fall from 7.0% in April.
The US calendar remains dominated by Fed talk and the minutes from the last meeting as well as January retail sales and producer price inflation. GBP/USD could remain volatile as investors evaluate the outlook for BoE/Fed divergence and how the most recent data/central banks releases (and commentary), influence this outlook. Technicians will see support in the 1.3500 region and resistance between 1.3600-1.33650.
